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  1. #1

    Default Young! Dumb! and full of... equity..

    Hey there

    Im in a position i would rather not be in. Im 23 and my dad passed away almost 4 years ago. He left me and my brother half of our home. I have recently purchased his half of the house. Obviously I would choose to have my Dad back no questions asked how ever thats obviously not an option so I have to make the most of what he has givin me.

    To cut a long story short I took on the property when i was 19 and have been doing the place up since with the rentel income generated by me living in the home with friends as flat mates. I soon became sick of doing all the work with my brother very rearly coming over to help. So it was decided that i would buy him out.

    The house was given a registerd valuation of $255000 6 months ago and i purchased the house 3 months ago for $127500. At the point of the valuation the house wasnt in a good state with serveral major renovations half finished how ever this wasnt an issue as this was working in my favour by having a lower valuation ment my purchase price was lower. Since purchasing the house i have installed a new kitchen, painted the a large portion of the internal walls, brand new carpet through out, new curtains and a new fireplace with a wetback. I am pretty confident that a current registered valuation would come back at between $270-$290

    Im currenty living in the house with a flatting situation going on and the rent is $280 pw, I think this is below the market rent which i belive i could expect to get closer to the 300 mark maybe even more.
    Its a 3 bedroom home and we all pay $90 a week for the room and share the expenses.


    So where i am at
    House $270
    Loan $125

    Equity $145k

    I want to do somthing with this and try and move up in the world.

    I am able to free up alot of my income to put into a short term investment. My idea was that if i play with the loan on my current house it will become cashflow positive, even more so if i move out and charge a market rent. I can move back into my mums place and live there for almost free. I have a company car with free gas so that cuts out almost all of my expenses.
    Which would leave a decent sum of money to put into an interest only loan on a spec home to build and flick off and make a smallish amount over the space of 8ish months time. The theory being to repeat this over and over again...

    I worked all that out in my head and its just a random idea but your thoughts and any other suggestions would be appreciated!!!

  2. #2
    Join Date
    Mar 2007
    Location
    Auckland
    Posts
    3,017

    Default

    Try fiddling with some maths.
    If you rent out the house for $300 per week, that's $15000 per year.
    Less around $2500 rates/insurance/etc, net $12500.
    A $12500 interest payment would service a loan of $178,000 at 7%
    Less your existing loan gives you a cash lump sum of $53000.

    So you can use that as a deposit on something else.
    Why would you buy/finance building a spec house when you can buy an existing house all set to go tomorrow?

  3. #3

    Default

    well i have been told that the most money is always made on the first sale of a home. So was thinking if i can buy a section and build a house then sell it for a decent wack more than its cost me then its a good idea?

    Like i said im at the very first stages so i am open for suggestions and a schooling in property investment!

  4. #4
    Join Date
    Oct 2005
    Location
    Auckland, NZ.
    Posts
    621

    Default

    Was it the spec building company that told you that?

  5. #5
    Join Date
    Dec 2007
    Location
    Vienna, Austria
    Posts
    2,662

    Default

    At the age of 23 you are in an enviable position, especially if you have secure employment. Many people risk their own homes to build up a wealth creating portfolio of houses yet you are in a position of having a house at young age with a substantive equity. You may wish to consolidate your position so as to ensure a secure base in which to build your wealth and future prosperity. I am suggesting that you transfer the house to a family trust with you as the sole beneficiary ( if you later form a long term relationship that then turned sour you would have protected the property from marital division), each year gift the maximum tax free amount to the trust so divesting yourself of direct ownership within 5 years. As you suggest it may be a good idea to move out and maximise the rental income, so that the trust can pay of the loan at a faster rate. It may seem along time but you could well have the house debt free within 10-15 years, and better still protected from any financial problems that may happen in the future. If you went in this direction you would have the security of knowing what ever happened financially you would have a roof over your head.

    By living with your mum and setting up a strict savings and investment programme you could then build up a deposit for a separate investment property ( perhaps having taken some equity: but not a substantive amount) from the house as part of setting up the trust ie: the trust takes a loan and buys some of your equity off you) that separate investment property could then be you starting point for devloping a rental portfolio.

    What ever you do: develop 2-3 possible scenarios and then find a reputable financial advisor ( one that charges you, not one that earns their keep by comission from the products they sell you) and discuss those options with that advisor then pick the best option that suits you. Then be disciplined a stick to the plan decided ( with in reason).


    Its not good your father died but he has left you with great potential for the future.
    Last edited by Austrokiwi; 12-08-2009 at 11:04 PM.
    The mission of any business enterprise should include the aim to develop economic conditions rather than simply react to them.

  6. #6

    Default

    I have already put the property into a family trust At the current rate the mortage will be paid off in just under 13 years. That is only with a small topup from me, I am in a commision based job so when i get a good month i try and put as much on the floating part of my loan as I can.

    I also have just over 20K tied up in a boat and im debt free other than the loan for the house.

    Cheers for the advice!

    No it was a guy at work who has built and sold a few houses over his life. I took his comments on face value and was putting them up for you guys to confirm or not.

  7. #7
    Join Date
    Dec 2007
    Location
    Vienna, Austria
    Posts
    2,662

    Default

    Quote Originally Posted by Hamsta View Post
    I have already put the property into a family trust At the current rate the mortage will be paid off in just under 13 years. That is only with a small topup from me, I am in a commision based job so when i get a good month i try and put as much on the floating part of my loan as I can.

    I also have just over 20K tied up in a boat and im debt free other than the loan for the house.

    Cheers for the advice!

    No it was a guy at work who has built and sold a few houses over his life. I took his comments on face value and was putting them up for you guys to confirm or not.
    Get a bit more advice from other forum members. I am a very risk intolerant person in my late 40s. At your age you could tolerate a lot more risk than I can all I am suggesting is use the house as a safe fall back position and take risks with other money ( from your salary) then at least if anything goes wrong ( no commissions for a while) you won't risk the heritage your father has passed on to you..........given that you have already put the house in a trust I would say you a showing much more wisdom than I would have at your age.
    Last edited by Austrokiwi; 12-08-2009 at 11:40 PM.
    The mission of any business enterprise should include the aim to develop economic conditions rather than simply react to them.

  8. #8
    Join Date
    Oct 2005
    Location
    Auckland, NZ.
    Posts
    621

    Default

    Some people may pay a small premium to purchase a brand new home, but an equal number of people would pay a (larger?) premium to purchase an older 'character' home with original features - ie the Ponsonby/GreyLynn villa - so this evens out I believe.
    (Not withstanding the unfortunate period of leaky house building)

  9. #9
    Join Date
    Oct 2007
    Posts
    322

    Default

    Go read all the property investment books you can. There's only about 15 NZ property investment type books. I would read these over the next few weeks/months.

  10. #10
    Join Date
    Jan 2006
    Location
    Wellington
    Posts
    559

    Default

    You have done well with what you have got and paying back debt is a risk free thing to do. Probably the wrong strategy for a 23 year old. Banks are lending 80-90% equity these days. How many rental units could you buy with your equity. Go along to your local property association meetings, read the books and this site. Find out what works well in your local market and go for it. Perhaps you should consider Commercial as well.
    Doug


 

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